Superfund Recycling Equity Act Eliminates Potential Liability for Most Recyclers

If your business recycles, you may have been concerned in the past about possible Superfund liability if the recycling operation you used caused contamination. At the end of last year, Congress finally handed recyclers some relief. The Superfund Recycling Equity Act provides an exemption from Superfund (the Comprehensive Environmental Response, Compensation, and Liability Act or "CERCLA") liability for most recyclers.

Under CERCLA, recycling operations such as smelters, scrap dealers and businesses that sold or otherwise transferred their scrap or excess materials were exposed to liability.

Because many felt that this was an unintended and undesirable consequence of CERCLA's broad reach, the statute was amended in November, 1999 to provide an exemption for recyclers.

Under the new law, recyclable material that qualifies for the exemption includes scrap paper, scrap plastic, scrap glass, scrap textiles, scrap rubber (other than whole tires), scrap metal, or spent lead acid, nickel cadmium, or other batteries.

Scrap metal is very broadly defined and includes such things as bits and pieces of metal parts (bars, turnings, rods, sheets, and wire), metal pieces held together with bolts or soldering (radiators, old cars and railroad box cars), as well as solder drippings and some circuit boards.

If scrap metal is contaminated with some residual, used oil, it is exempt; if it is melted before it is sold or transferred for recycling, it is not.

Batteries qualify for the exemption so long as they have not been broken or smelted. A number of already existing regulations governing the recycling of batteries remain in effect.

Recyclable material does not include shipping containers that contain hazardous materials or any material containing PCBs in a concentration greater than 50 parts per million.

For the liability exclusion to apply, the recyclable material must meet a number of tests:
(1) the material must meet a com mercial specification grade;
(2) there must be a market for the material;
(3) a substantial part of the material must be made available for use in manufacturing a new product; and
(4) the material could be a replacement or substitute for virgin, raw material.

These requirements help ensure that the materials really were intended to be recycled. While the requirements may sound difficult to satisfy (most businesses don't know exactly where their recycled materials will end up), the courts and agencies will likely take a practical approach to deciding issues such as whether the recycled material could be used as a substitute for raw material or whether there is a market for the material.

Companies will probably not be expected to prove these elements for any particular piece of material recycled, but should be able to satisfy the requirements by showing that, for example, scrap copper is generally processed and used as a substitute for virgin copper in many different applications.

The recycling exemption may be lost if the recycler:
(1) knew that the material would not be recycled;
(2) knew that the material would be burned as fuel;
(3) had reason to believe hazardous substances were added to the recyclable material to dispose of the hazardous substance; or
(4) did not use reasonable care in handling the material.

Again, these requirements help ensure that the materials were really intended to be recycled and that the recycling exemption was not claimed improperly.

The recycling exemption applies to recycling transactions in the past as well as in the future. However, for recycling transactions after February 27, 2000, the law imposes an additional requirement the recycler must show that it exercised reasonable care to determine that the processing facility was in compliance with federal and state environmental laws. If you recycle, whether it's just getting rid of surplus materials or dealing in scrap materials you should take steps immediately to investigate the environmental compliance of both the party to whom you are selling and, if known, the facilities where the recycled materials are ultimately going to be processed, handled, reclaimed, or otherwise managed.

If you are selling materials to a broker or scrap dealer, it may not be enough just to investigate their environmental compliance. Without taking these steps, you may lose the recycling exemption.
Whether recycling is your business or a consequence of your business, the Superfund Recycling Equity Act is good news, as it removes the potential cloud that has surrounded these transactions until now.